Insurance firm seeks exemption from tax

Summerlin Life alleges the 4.265% levy is unfair and stifles competition

Summerlin Life & Health Insurance Co., the state's only for-profit health insurer, is renewing its push for legislation that would exempt it from a state tax that its nonprofit competitors don't have to pay.

It's an uphill battle, opposed by powerful forces in the Legislature and in the industry. But it concerns a law that the state insurance commissioner says is keeping away other insurers whose competition could bring down rates here.

One version of the legislation has passed the House Health Committee and must now be heard by the Consumer Protection and Finance committees, while two related Senate bills have yet to move through its respective committees.

"I don't see any reason why we would move something that would benefit just a particular carrier of health insurance," said House Speaker Calvin Say, (D-St. Louis Heights-Wilhelmina Rise-Palolo Valley).

He added that he has suggested that Summerlin either restructure into a mutual benefit society, health maintenance organization or nonprofit health plan.

"Then everything would be there for a level playing field, he said."

For the fourth year in a row, the Nevada-based insurer, which has nearly 27,000 members, is asking lawmakers to waive a 4.265 percent premium tax that it says makes it harder to do business here.

For Summerlin, the tax amounted to $1 million last year, a significant sum for the state's smallest player in Hawaii's highly-competitive health insurance market.

The Hawaii Medical Service Association, Kaiser Permanente Hawaii, Hawaii Management Alliance Association, University Health Alliance and Aloha Care are all nonprofit insurers and exempt from the tax.

"Without relief from the premium tax we will not be competitive long term -- it's certainly likely that we will be required to reassess how we do business in Hawaii," said Jim Dyer, Summerlin chairman.

State Insurance Commissioner J.P. Schmidt, who also is backing health insurance rate regulation to increase competition, said that for-profit companies won't even consider doing business here because of the tax handicap.

"The premium tax on for-profit health insurers has simply acted as a barrier to competition," Schmidt said. "I've had discussions with executives of health carriers interested in doing some business in Hawaii, but said they will not compete in the general market because the tax is too much of an obstacle."

Meanwhile, other carriers say for-profit companies should have to meet tax-exempt requirements under the Internal Revenue Service code, and not be exempt merely because they do business here.